Securities and Exchange Commission Open Meeting

Securities and Exchange Commission

Open Meeting

Monday, November 2, 2020

Key Topics & Takeaways

  • Amendments to the exempt offering framework: In a 3-2 vote, the Commission approved final amendments to the exempt offering framework.

Staff Presentation: Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets


  • Bill Hinman, Director, Division of Corporation Finance
  • Jeb Byrne, Special Council, Division of Corporate Finance
  • S.P. Kothari, Chief Economist and Director, Division of Economic and Risk Analysis

Hinman recognized the increased use of the exempt offering markets and said that the collection of rules and exemptions regulating them lack cohesiveness. He explained that the amendments being considered reflect a comprehensive effort to simplify and improve the existing framework to be consistent, accessible, and effective for both issuers and investors. Hinman noted that the final rules retain the current structure but attempt to reduce potential friction points in the offering process.

Byrne explained that the final rules would revise the integration framework for both registered and exempt offerings by establishing a single framework that would provide a general principle of integration and four non-exclusive safe harbors. He said that the final rule would provide greater certainty to issuers and protect investors by setting “clear and consistent rules governing offering communication between investors and issuers.”

Kothari stated that gaps and complexities in the current exempt offering framework can impede access to investment opportunities for investors and capital for issuers. He explained that these amendments will provide a streamlined and consistent framework to better promote capital formation. He continued that the increased flexibility afforded by the amendments could enable issuers to optimize their offering strategies and reduce financing costs. In closing, Kothari stated that he expects the amendments to Regulation A, Regulation Crowdfunding, and Rule 504 will make these exemptions more cost effective and attractive to a broader range of issuers.

Commissioner Statements

Chairman Jay Clayton

In his statement, Clayton explained that the proposed amendments would rationalize the exempt offering framework, increase efficiency, and facilitate capital formation while preserving investor protections. He stated that the new rules were crafted with three objectives in mind; (1) remaining true to proven principles for retrospective review and modernization; (2) addressing changes in the marketplace, including changes in communications technology and access to capital; and (3) reducing costs for smaller and medium-sized businesses. Clayton recognized the increased use of electronic communication and said that regulations should not “cling to the mail and paper as the default or preferred paradigm for communications.” In closing, Clayton noted that the final rule will not change the definition of accredited investor, the types of offerings and circumstances under which investors can participate, or the anti-fraud and other protections they receive in private offerings.

Commissioner Hester M. Peirce

In her statement, Peirce explained the amendments as “targeted improvements to a regulatory scheme that unnecessarily hinders capital formation and unduly restricts investors’ opportunities to participate in economic growth.” In response to the continuing pandemic and its strain on small businesses, Peirce stated that the Commission is extending for an additional eighteen months the temporary relief with respect to financial statement review requirements in Regulation Crowdfunding. She characterized the amendments as a positive step, but stated that the Commission has more work to do to ensure that small- and medium-sized businesses can raise capital in a way that works for them, supports economic growth, and is consistent with investor protection.

Commissioner Elad L. Roisman

In his statement, Roisman stated that the amendments under consideration will streamline and tailor the existing exempt offering framework for businesses seeking to raise capital while preserving investor protections. He stated that he supports the extension of a portion of the temporary Regulation Crowdfunding relief approved last May and wants to explore making it permanent. In closing, Roisman said he looks forward to hearing feedback from market participants and assessing how further changes or refinements may be helpful.

Commissioner Allison Herren Lee

In her statement, Lee expressed concern that the final rule permits larger and more frequent private offerings to be more widely offered to the general public without sufficient investor protection. She listed concerns with individual provisions of the final rule; notably: (1) the increase of capital raising limits in offerings such as Regulation A, Crowdfunding, and Rule 504; (2) the failure to address the effects of inflation on the wealth thresholds in the accredited investor definition; (3) the reduction of disclosure requirements and realizing of accredited investor verification standards; and (4) changes to the integration framework. She stated that these changes will blur the line between public and private markets and make it harder for regulators to police the private markets. In closing, Lee stated that the rules will erode boundaries between the public and private markets which disincentives public offerings and threatens investor protection in both markets.

Commissioner Caroline A. Crenshaw

In her statement, Crenshaw explained that the final rule expands private market access to investors without first putting in place appropriate protections. While she commended the staff for considering the utility of harmonizing the exempt offering framework, she stressed the need for a solution that both broadens access to capital for small businesses while still protecting investors. Additionally, she expressed concern that the rule could further entrench the country’s economic divide.

Final Vote

The final rule was approved 3-2, with Commissioners Lee and Crenshaw dissenting.

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